- Earnings call transcript Q3 2022

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Operator

Good day ladies and gentlemen and welcome to the Cummins, Inc. Q3 2022 Earnings Conference Call. All lines have been placed on a listen-only mode and the floor will be open for questions and comments following the presentation. [Operator Instructions]. At this time, it is my pleasure to turn the floor over to your host, Chris Clulow, Vice President of Investor Relations. yours. is floor the Sir,

Christopher Clulow

[Technical Difficulty]. Officer. Chief Smith, our Financial Mark

questions available end We be answer at will all to the teleconference. of the

Before statements expectations, and regarding of within XXXX. some hopes, that meaning of will beliefs, given please statements Exchange information future. the will the start, Act Securities today forward-looking you be hear strategies express of of intentions consist Such on the that or we the note our forecasts,

slide subsequently in could More particularly in differ Report on in filed the and statements Annual materially risks Our such filings actual factors filed projected of uncertainties. forward-looking Securities Form disclosure Form of those XX-Q. and and most the future Exchange information the and number XX-K quarterly recently a and on Commission, reports statement results the any deck section forward-looking our available because from with such uncertainties risks is risk of our regarding

be we'll During certain reconciliation the course discussing financial for measures you our of measures, refer measures. financial those the to non-GAAP website of this GAAP to call, we will and

Our webcast press on kick turn are copy off. release With cummins.com. website statements to us the of section over way, that you our our Relations the at presentation within Investor available CEO, to Rumsey of Jennifer copy out with and a will and financial the a today's of I President

Jennifer Rumsey

more of both our summary for region, our our quarter discussion you performance of Mark quarter I sales Thank a by finish market start results, of you end then trends and take XXXX. will for third and with third morning. then Chris year. and forecast through the will will and good details financial outlook with financial our I our I a discuss will

want a drivetrain, industrial supplier capabilities power welcome and leading Meritor, as the Meritor’s the third aftermarket electric from been markets. The their company. and mobility, Before and powertrain provider internal Xrd, take applications. and getting excited and technology customers of electric Cummins to position several our leading On will new our vehicle few a for global events solutions of powertrain products in quarter. The a integration We've details achieve a across colleagues combustion goals completed and to into collaborations acquisition to to of moment of further the axle highlight announced our advance our the major company solutions that strategy. performance, I decarbonization August destinations people, the our enable integrated of into Euro Cummins brake braking, commercial

it announced capacity economy. option end starting will the the announced PEM with providing to During its when begin gigawatt at Transport States, hydrogen hydrogen to at United the powertrain The facility, more-timely Electrolyzer and commonality it combustion fuel key the familiarity. to solution collaborations agnostic X an that XX-liter business engines Enterprise megawatts installation presence to producing factory emissions The Oevel, customers the Versatile in available. its expand and Leasing demand to third quarter, Cummins our green company will place Minnesota Belgium, XXX announced enable in Fridley, The as engine, user carbon advancing to Cummins Europe, gigawatt. and nation’s annually, at by underscoring part manufacturing dedication hydrogen rise America, future. internal to of manufacturing electrolyzer North will continued our scalable New green continues of Enterprises, Cummins’ globally production in take of also China. electrolyzers markets capacity hydrogen X with expand platform, Power reduce has will XXXH deliver a Werner and continued

the filtration Meritor In separation for of our The of separation positive filtration moves our are addition and the preparing and business business. of progress mood continue addition we future. the to for make planned

However, there materials, reported press earnings influenced, can you release are results from our our which upfront with and transactions, heavily see both this associated costs quarter.

we We our expect both future that the progress most updating and behind look us transactions in on you to forward associated costs significant quarters. with are

will of on the company in comment across third strong North key third remained of Demand markets markets the with revenues on key of notable cover for quarter some our regions and I strong largest starting quarter. international Now, overall and our markets. of all in China, performance for with resulting before the moving America exception our the products our XXXX to

totaled revenues quarter Third billion. $X.X

same in an the or the Excluding increase third billion, of quarter EBITDA Meritor XX.X% was were $X.X XX% XXXX. quarter sales. million revenues of the business, from in quarter third $XXX

EBITDA Meritor sales the cost business related acquisition or integration to of XX.X% or sales million ago. was a and million XX.X% results year Excluding and Compared of $XXX $XXX $XX million the

without expected diluted Third quarter include the $XX these EBITDA or My results moving sales. to of will related of of share results million exclude filtration Meritor XX% costs the cost and or $XXX Meritor, $X.XX its the filtration our for of associated and comments of business. with cost the associated was costs filtration separation per business. Adjusting separation costs with the million the forward acquisition, planned

drop markets. by Our for from China the XXXX in reasons; of the a quarter the decline primarily quarter slowdown in driven the main in joint EBITDA venture first, percentage we third three third XX% saw income

of did and dividends apply retention delivering and demand A to is our supply and not time other company our continued we in invest new particularly development executing navigate officers. and as Second, And bonus customers, motivated work future, And critical people. in creating bonus in investment the commitment the this chain the made will and will on effective finally, advantage their engagement highly value. to and research competitive technologies workforce in This in we power segments. through intense one-time an investments people, pay and engine products in that challenges. our increased we and bonus to over our shareholder the create customer recognition in meet and a of strategy, to

quarter, improving have start the offsetting positive business and We margins of in and chain XXXX. continue gross progress Gross impact since our costs to the percentage elevated margin experienced of of that supply inflationary other make we improved and in the coverage increases XXXX, exceeded volumes logistics, product during pricing benefit quarter. compared material the the and as manufacturing, higher of the the to costs cost quarter third and of third higher

quarter Our duty and up third heavy driven pricing, demand. XX% XX,XXX quarter Industry XX% in volumes, billion revenues after North production from the America to XXXX grew higher market units, $X in by of improved third levels. was trucks higher

duty quarter production unit sales XXXX heavy XX,XXX an duty of Industry trucks XX% XXXX. medium from XX% from XXXX, our of While increase units was XX,XXX, were levels. the third of up in

of sales by America pricing. compared quarter strong Power volumes power North Systems higher XXXX Power the XX unit also America XX% engines were quarter down XXXX. generation were just America While sales by Stellantis We increased increased in Ram demand. XX% XXXX XXXX by XX% oil and XX,XXX, for North by and our from from driven X% rental up pickups levels. XX and XXXX third in up sales in were compared Systems of aftermarket. quarter up strong driven XXXX. XX% by shipped gas their to to America strengthened spending to up the Engine capital North over sales the due third to North customers of from sales third XX,XXX to construction use XXX% industrial companies

Our quarter XXXX year ago. to International decreased the revenues of third in compared X% a by

property China Weaker Third including in demand lowest decade lower decrease as to and year. recovery and billion, COVID-XX of trucks in level ventures second continues market of half quarter units, in a economic was contracted instead decrease of heavy-duty medium the joint our of were vehicle and construction outbreaks investment, the highway new from XX% Industry projected from revenues the XXXX. pushed the to the the and impacts in have demand, XXX,XXX to a China, from $X.X due XX% on the shutdown of to market a sales markets. country the a respond

our X% The including China XXXX duty Our were market sold to units excavators decrease decrease joint X% a for ventures units a of sales third of decreased power demand a while quarter XX% our the decrease were was in decreased economic the units in increase XX%. China resurgence. third in of due ventures the third levels in impacts XX%. light units Industry equipment of joint in in the XXXX XXX,XXX quarter of of generation XX,XXX from were units, and X,XXX from Sales to X%. the levels sold an including XX,XXX, XX,XXX COVID-XX units, quarter,

improve, that million, increased by to the generation power commercial third increase due an XX% joint activity truck Industry revenues from for the shipments a third year the segment. the production to continued growth economic industry the in in for the XX% heavy in of production quarter quarter vehicle India, lower quarter lagging increased increased in record revenue XX%, as were in while Demand ventures market. Third ago. our $XXX including quarter resulting

Now, the for our on let the of me first of results Meritor markets. regions clarity XXXX we provide our including guidance the end some on from date outlook and projections, provide end excluding provide To individual will acquisition comments through XXXX.

in XXXX China, indefinite we provide XXXX. maintaining of year a North then revenue as expected This a of Russia. view in guidance up will guidance our suspension last stronger market year. and for continued current full reflects the well on of operations our in versus We are outlook X% weak America Based forecast, performance the results Meritor as

is higher medium-duty units as of the chain be to at in a XX% XXXX. improvements XX% increase quarter, are expect in associated in collective from expected our In the with half This Based fourth with to expectations inflationary sales indefinite the and of we've guidance filtration in increase to pricing separation to one-time to the XXXX, industry XXX,XXX previous We America compared sales, seen improve customer guidance to market drive below XXX,XXX are the approximately strong lower oil the continue the a gas, and is size our in and quarter. global excluding XX.X% increase reflects suspension with our demand our made meet of of North units, be EBITDA employee a XXX,XXX in acquisition trucks expect market Russia result is in bonus continuing power in relative as XXXX. to the costs end America production XXXX, be to generation of for of limit business. throughout This forecast heavy cost to and and current increased forecasting aftermarket North demand. and on integration, China the the the of XX% our second expected mining, continue duty we on we costs the constraints sustained the of operations associated cost project our our results revenues ability to investment the Meritor our the than third markets, fully of supply we approximately and in now expected X% of market operating year to The profitability efficiency. and to truck expected preparing year-over-year.

difficult engine an with now prior We flat including update reduction our We North XX%. to guidance our are XX% reduction truck America XX% to a XXXX, to in previous guidance. shipments ventures total of now In and pickup duty XX% China growth project compared consistent Industry positioned in decline to with through demand to projecting to guidance. XX% presence region well joint the sales for in in XX% in from project the guidance. demand down to in trucks revenue our expected previous medium-duty our be XXXX in XX% compared light to and cycle heavy the decrease a are in to prior we environment down are for out to XX% in China the and market decline XXXX China across have levels improve a continued economic in consistent market truck our reduction XX% and markets of XX% Despite end excavators in respectively the continued we and region. record our

new ahead are industry As continue NSX of more implemented the as increase broadly. we regulations volume to look products will

to share. our positions us experience NSX to market outgrow and this NSX the emissions ahead continuing partners With and our of run our share expertise technological support through well transition. Our

adopting ramp to our XX% continue previous presence In our increasingly to XX% including in of total up from is and production improvement technology. joint also XXXX, and project as this heavy-duty our market revenue We ventures share we guidance an in to automated manual expand XX%. increase India, increases transmissions, the market

the prior Strong high-horsepower expected flat. now gas oil of XXXX. also XXX% and expected oil expect increase up India is X% for to compared by generation to demand in power has and performance generation expected through energy our previous are to an and this improvement fueled construction. demand global U.S. engines non-residential eased XXXX. Strong of security contributing for in of markets our production with We from X% year, expected pricing. improved engines mining the guidance to XX%, to industry outlook. This markets remain power are increase within slightly and strong increase to gas by end Sales is to prior improved this the our XX% be new trucks markets prior of the Demand Most are outlook. approximately increased from strong guidance. major in chain consistent is constraint increase by supply amid driven in an driven Revenues and increases other in guidance as global

our is Systems approximately strong sales $XXX America XX% within by XX% aftermarket and due to consistent increase to business, as to expect demand On-Highway down to well our as outlook We impacts. This supply our XXXX In from North $XXX markets. chain parts guidance we are with New estimate. year previous be from driven of Power global customer Power million previous sales full million projecting scheduling

increased and XX to to have North which seeing convert over to Reduction backlog months and of Act. pipeline in next the we a following of We the be passage XX of Inflation course we growing America the delivered electrolyzers the expect are momentum

in continue the delivering fuel in our bus on Government China application. the demonstrated This successfully will customers cell units XXX we cell a quarter Additionally, third collaboration fuel by power to both launched was system Lin-gang to and HD with we the XX accelerate in as Cummins for electrified XXXX. applications

integration expected Meritor, we of to impact sales purchase X.X% full the be our billion since of For financial across to date Meritor same New the of revenue Power expecting Components of are the represents between including is approximately and the This required to during billion. be year $X.X accounting acquisition EBITDA $X.X and businesses. impact costs. period,

the to shareholders we and plan the form our to of million $XXX consistent in share shareholders quarter, During XX% flow returned approximately with return the repurchases, cash of dividends to for operating year.

I making in As we our are industry. up our in to strategy to want quarter, decarbonizing third I progress that lead the sum emphasize

have second levels, not quarter fundamentals Although the profitability dropped from changed. business the of our

improve to the of This contribution performing We to performance quarter for from financial the the for Power guidance the products business share in levels, of I expect fourth are some this direct is the and the in in customers implied do total our quarter, improvement I'm quarter and profitability from our workforce. demand Systems core enthusiastic about from rising Our clear well, prospects leading the fourth market future record our to result do markets. quarter. third earnings of the outstanding company in acknowledge as growth. want

remainder our improving the incremental We financial business beyond. are performance to and strong and of through committed margins the underlying delivering XXXX of

to over me Mark. turn it let Now

Mark Smith

of in clarity I the will step Thank reported results them that everyone. provide the to prior factors allow the leave our Jen key want and But on comparison quarter, our a of you, company strong. our third the the with to of to good performance fundamentals business is through you and for number I guidance. There morning impacted takeaway that were remain underlying and

aware, actively Meritor through in acquisition As are business working the you of we August are completed integration. the and

business, Meritor million of resulting the sales loss both two for accounting which integration acquisition Our a million, months purchase of total EBITDA and impact and in performance third operational the of and included results includes of quarter $XXX costs. $XX

comparison planned of am costs included to performance acquisition guidance, of also quarter on to the I results these in To excluding items the impact clarity following our our operational the third excluding business. the of my provide in business, the separation $XX of prior Filtration related Our million comments.

suspension in up and which me detail of taxes the let or amortization, international our ago. sales impact China, interest, performance. decline the a were of by reported X%. unfavorable $XXX billion, XX% primarily stronger and Now XX% and by due on Sales before depreciation get Revenues quarter year reduced North driven XX.X% dollar, in fluctuations from into foreign decreased the revenues third EBITDA, our more were sales. to of Russia, or America in X%, were the our a $X.X million Earnings currency up while U.S. operations

was and year spend costs lower Filtration, percent ago. Meritor or EBITDA business XX% of separation the the the the commitment onetime onetime with segments, within joint of driven Excluding admin, quarter $XXX EBITDA associated and primarily to impacted results, $XXX an integration of weaker development, those and to research earnings acquisition support, and compared a in with the to increase all of million or $XX sales sales the for by $XX engineering the XX.X% costs million of in The bonus engineering was China margin million This million totaled venture results costs within gross our product costs. reported new $XX recognize support selling, million reported employees. reported bonus and operating of and

on the losses $XX of China. driven income than platform, the income compared ago, fuel construction million including into by in driven from million Joint expenses of year strategy, which by hydrogen our line million Net by investments a $XXX a expense $X.XX products down from to and of $XXX ago. was to the to attributed cell, XXX costs. or decrease our primarily year to million this electric, by $X.XX the $XX increased critical an Interest plans. benefits development $XX million gain and me lower Filtration effective or technologies. lower tax per supporting research effective year financing million margin including investments related rate to that the unfavorable of compared increase $X.X stronger XX%, tax quarter with of The and by share, share increased to underpin costs all-in to last for by and go people million let of engine Gross And million fuel-agnostic in the year more of due to venture volumes the XX.X%, quarter Meritor. by billion quarter. due year, diluted detail a for million Other $X.XX sales the qualified those compared achieving in million higher earnings planned was primarily versus items admin, the discrete offset benefit or than primarily or cash in material Selling, per electrolyzer to the primarily and $X rate costs last $XXX Zero on $XXX primarily trucks diluted related $XX $XX item. was quarter mark-to-market million of equipment or $XX battery business. basis of flow higher were higher last points demand an the of acquisition separation Operating Destination Now inflow PEM XX.X% to due QX in million, research the a increased million or declined more $XXX $XXX ago, pricing, for year.

comment for on guidance performance our segment the Now XXXX. and let me

quarter lower decreased $X.X EBITDA in more to the product third offset and from XX.X% billion, year manufacturing the pricing were as joint benefits X% than venture higher and For income costs of a increased China. ago of Engine coverage by segment, revenues from and to sales XX.X%

to to to of bonus. and year revenues a previous a In XX% due to of the XXXX, segment, the decrease full billion. compared EBITDA percent XX.XX%, ago and expected consistent of approximately increased XX% year in impact to a parts, stronger be equipment. employee XX%, up to power increased be guidance with for our due onetime from prior our the and we weaker as to X.X% from China pricing ago guidance. expect outlook XX.X% engines, EBITDA Distribution sales the a revenues For demand is a generation year $X.X

lower with We line with of approximately of driven in demand pricing in expect be revenues by the last compared sales XX% revenue up driven XXXX to projection. actions strong warranty consistent the expense. our XX.X% XX.X% Components EBITDA our of to guidance. is quarter, Distribution prior sales, to EBIT be year, third primarily by and expected sales, increased XX% from to North prior in increased now benefits of XX.X% America.

systems. to of our and months the increased expect an to for of realization, -- EBITDA view continued XX.X% Clearly, We EBITDA the also a unchanged guidance and expect full the EBITDA revenues from from segment, demand excluding year higher billion, projected up exactly performance are prior underline line the and guidance by Power aftermarket approximately a year. to we EBIT electric driven quarter year sales. to full XX.XX%, volumes, approximately for the I three of up increased up acquisition with stronger price margins in segment for price ago. most by due demand from $X.X X% third In impacted our our XXXX, our battery segment. to Power results just quarter million, XX%, prior the the to increase In be the to and project is Meritor, to and Components XX.XX%, be segment XX%, XX% want XX.X% strength that margins from be parts. Meritor in was the increased ago up increase revenues of in revenues addition X%. record strong due Systems guidance for revenues In from for stronger $XX the were XX% to realization the New

in was the growth. million invest strong Our continue infrastructure, products, to $XX quarter future to we the EBITDA in and capabilities support loss as

down to be continues in and the slightly full prior our demand, however, to and new million bring guidance scale to systems driven electric products of from Net be capacity to investment battery both to we supply XXXX, revenues chain $XXX by delays million Underlying year expense some projected now For projects increased grow our compared up market. electrolyzer Power million, approximately some electrolyzers. to of $XXX up this million, expect guidance constraints. production $XXX prior New due $XXX customer segment for for to is and

year. expect the we excludes associated acquisition XX% be be our at guidance impact up this improvement Russia, approximately preparing suspension indefinite profitability clear, quarter. in are of and we and expectations business. any related integration total company our the the our costs, and expenses maintaining fourth guidance does mentioned, in To with now again, separation EBITDA the Filtration of full the the that revenues of business the for Jen X%, to Meritor an XXXX and once As margins imply for of operations in This

We in from and that all ventures is due to expect to suspension in the earnings due guidance XX% Russia, XXXX the business to in joint weakness of impact China our China. XX% and by of prior XX%, ongoing in to our the conditions decline of slightly worse than down

is rate XX% tax XX.X%. to of guidance effective increase an our discrete XXs any in expected there, approximately Our be of prior from now XXXX, lots items, excluding

bringing capital $XXX cash our million repurchase third our full Meritor, $XXX and to million. for $XXX the quarter, to we're of to of be shareholders year $XXX a our million up from year-to-date. in quarter to expenditures year million in in $X We were ago, to maintaining the total and shares range returned guidance returned million, Excluding expenditures through $XXX the billion dividends shareholders capital

capabilities. reinforce that Cummins EBITDA the implied profitability the Thank including returning guidance. our leadership accounting. in investment growing position, future to purchase your you all to $X.X businesses, of is our to interest. Meritor My to no, do markets to the year while quarter approximately -- setting cash our full as we to adjusting shareholders. again billion of the anticipate interest full we $X.X And ownership, we through under today your still stronger year strong already repurchases. this of dividends returning our revenues of the Thank mentioned, and range be five through our expect operating in you. the as year impact for in a X.X%, and deliver share guidance, of billion For XX% core stronger for products In portfolio And flow company approximately guidance closing, I up cash be expect to in for I've XXXX, in We new and while fourth a months in your shareholders the are want today.

to Chris. me let Now it turn over

Christopher Clulow

to Thank you, you call, Mark. others consideration follow-up. Out yourself and the question would one that to related limit of ask I a on

question, have please an queue. we additional the If rejoin first are ready for you question. our Operator,

Operator

Okay, Jefferies. comes first question. from Please your question Stephen Volkmann state with our

Stephen Volkmann

Meritor, it's morning your quarter guys. that, guidance. going But you. kind a busy you you that Mark, how to interested here. we're about but probably the good head Great, apologize of maybe Mark, like-for-like out I accounting, on kind basis, in numbers how of assume spinning next to to I are will of purchase report be Thank my next of the terms trying in I'm sort day. just the adjust out in have I'm figure a you'll think the supposed quarter? for

Mark Smith

we also, what do and realize so for Yes, it's lot trying we're complex to us there's a going Steve. on,

the that then Meritor guidance make Cummins we reasons the And is So performing against the acquisition, the to to business lowered clear we'll be on for clear to in and guidance just why. prior trying do our clear try be we're to what we're performance. how Meritor layer we'll which

to projections So we're for trying both. give

year, next on can we're that But continue you and move making on we'll progress going gain business this in out of all-in so quarter fuller can you the business details picture confidence the break all just separately, around done to elements we've Meritor Meritor report provide we integration and pre-Meritor, earnings we'll material, and and reporting. will then and different to as try the forward. We growth will so that get in that then the executing a the

going taper to The next of -- But reducing quarters. start and answer goal. is will to not down quarter performance it's look quarter. our without, going to visibility main on QX will That's the front. and either we're go accounting we're similar yes, noise to the in So this report the in with subsequent purchase so from the

Stephen Volkmann

slot just months orders what talk a United And of of to would now I deliveries outlook guys customers big of in I'm and you you're kind as seen color give just switch these amazing enough. in hearing you to term, pretty longer can America. then, seeing fair the kind us couple heavy any quick truck a orders there sort great? of we're mean, Maybe Okay, that that of curious alright, we've starting the States, are you and North for be

Jennifer Rumsey

Yes, Steve.

because We rates. remain fundamentals customers exist for both to continue a how working through not that I want at conversations been strong been efficiency year at with powertrains this as these attractive. are we're the into replace order has a new are you been OEMs that of as We rate. strong to. And The constraints to out, using so just those that supply business around They've and and interest. the all market next level see improved high prices, production coming higher that that's also increase that typical remain new not continue and see have well, cycle, end fuel to the trucks customer have they project And the they've heavy-duty strong. will able trucks

the to and watch economic time. now, to see and continue underlying rates demand. continuing broader indicators strong may to we're we that work Right production So what increase mean over

Stephen Volkmann

will I it Appreciate thanks. pass on. Okay, it.

Jennifer Rumsey

Steve. Thanks

Operator

comes question. from Cook Suisse. Credit Jamie Our with next question your Please state

Jamie Cook

sequentially. two I up morning. good R&D just considerably questions. guess is The Hi,

out actions is the structurally if as I even we and be is a million things the the that but implications side, in are SG&A about guess I'm that taking that sort the Thank also because the bonus materially on same we -- case trying run R&D understanding up does just XXXX? but strong still the question new to was the any the rate, know think we the hit weaken? to I invest, I'm customers macro saying and macro, your and on $XX spend back my SG&A And onetime if to about we're should in are now So you. going context are wondering think continuing higher concerns of of for of bonus,

Jennifer Rumsey

Yes, great. Jamie, from Thanks, Good to the hear for question. you.

have New fuel-agnostic have, Engine we up electrolyzers particular investments technologies. New spend key business We in the taken and you Power the R&D business noted, and strategic in other platform and Power as the investments in where our growing in

manage outgrow the to will through we past, strategic that the continue and these underlying And we the and to the the investments. company those still have in improve through cycles cycles so as performance, key down will while us up of performance position time. over make making going financial to we're And investments

are priorities looking next our year. We for closely at

we while manage addition that more continuing investments We invest key make we're so any closely in are strategic areas those that downside headcount scenarios. potential starting to sure for managing to also

scrutinizing we priorities now. right those are closely more So

Mark Smith

in There pressure. admin Yes, particular, to and have quarters costs a increase SG&A to three on the I trying we would just that, out lowered the costs and of really of type selling in with is that's are which in a side, tremendous other the our on in pressure row. which [Technical add focus Difficulty] was business, business is to tied lot the upward there, the the flatten our is a our like engineering and under Systems Power aftermarket these

Jamie Cook

you. I it. appreciate thank Okay,

Operator

from with state comes Research. your Melius question next Please Our Rob question.

Robert Wertheimer

look caught would you off OEM couple answer the behind you you're bps an up and like versus you trucks the prices, if one that regard blended base and pricing frame could of or hello easy but are would your pricing cuff, North question wanted think customer sure to your little up at more or catch to the you across do hundred flexibility? America, Thanks the feel it's you lay specify on everybody. have out at you time OEM engines which a have to which My not I'm on be and a catch when bit do you up in if you

Jennifer Rumsey

start Yes, is and supply this I inflation our into seen business. is describe of would -- how what driven inefficiency we've that has the challenges cost XXXX, and since Over Rob, it.

XXX cost. we point in XXX price a improvement a to expecting basis compared on basis impact point For XXXX, are

able long-term into time with other business. So over we make flow to improvements of to think ahead contracts, we've we back Power are where business you metal do more to rapidly start and high not continue also price/cost we for in our market or have flow immediately. aftermarket backlog balance, the were time through efficiency. where Systems price to as takes of contractual when operating right, in year XXXX. that have And working through to to we're the also And we're we but we at agreements to that that get But work that and customers got course, about the and negotiate

Mark Smith

confirm, bore why fact, to reason And and was, of we XXXX. of in one just in material -- the price year we're reasons costs those of on the this ahead cost a second lot the half

Robert Wertheimer

there, still you Are Mark?

Mark Smith

Yes, yes.

Robert Wertheimer

just chain we've Thanks. lockdowns comment China out you you on and upside/downside there. Got stop does after the so then on could And it. that how risk, on feel I'll a And like globally you? it, chain, supply may again, if do supply peaked to you of be doing sorry. cost got Okay, take risk feel general give

Jennifer Rumsey

still and we the chain have side, to on continue issues. also Sure, improvement see we supply

at dynamic So more congestion that there disruptor. risk certain component electronic East the lockdowns continues as be in to in ports But China, continue be you in point, and Europe. these our this in said, is Coast, biggest more to

continue some we see to so And disruption. supply chain

we've been where up quarter-over-quarter and not build So improvement, gone. are sit, operational issues and drive taking able those rates from completely and some been it's I to improving

is, And year. this and next expectation that into that improvement see continued in into going so part, QX we'll influencing

Robert Wertheimer

Alright, thank you.

Mark Smith

Thanks Rob.

Operator

next with David your question. question from Please Evercore. comes state Our

Mark Smith

there? you David,

David Raso

Yes, I am.

that. Sorry about

set? XQ, just fourth is of understand can for quarter, exactly sort you I tell back so so fourth what what can I you're us EBITDA to implied Just the your adding margin can level quarter, the

Mark Smith

XX.X ex Meritor.

David Raso

XX.X quarter? for the fourth So

Mark Smith

yes. -- core to Compared

David Raso

seeing for business you're looking obviously, construction given business. But as activity about just truck China, there consolidated income. just EBITDA I truck, comes in think China about what think forward, big I the when a driver your in aspect lot of it's Then a know in we how obviously, the margin, should of JV the would stimulus, would you in obviously, a Photon, truck seeing the what just particular? a see around thought, they side Beijing the on was New particular, Congress Chinese just have just what their curious weaker thought I'm Year, in had than little I'm things from with you're I I curious, but on, going normally of lot

Mark Smith

there No of from certainly QX. now, right Dave, to significant the momentum not so that's improvement at part all QX

Jennifer Rumsey

you this as point. the in some I Yeah, mean, predict third and elected to just see Congress they We to -- seasonality at It's that market. typically had term. noted, difficult Xi

Mark as not we're said, projecting end year. the improvements of So the through

David Raso

and And of that thinking Can little within when it mining. at a obviously you healthy? us about have the pretty the comes how just perspective, results you're given that some give to gen were recent you I the business, business, power mean, early XXXX, look

Jennifer Rumsey

Systems U.S. Power the strong. Yes, truck like remain the continue to markets market,

so back going next -- a strength there we're We year. projecting there's large have into order

David Raso

Thank very much. you

Mark Smith

Thanks David.

Operator

question with next your Our Sachs. Goldman comes from Please question. Jerry state

Jerry Revich

Yes, hi, good morning everyone.

Mark Smith

Good morning Jerry.

Jerry Revich

in wondering some Meritor Hey number about, got maybe XXXX, a eAxles you ramping at production if as up, the electrolyzer ramping into engine based talk folks of Mark. on production ramping I'm terms your you've and can of tailwinds we head medium-duty recent up wins.

the magnitude is new you versus the if I can XXXX, like of product expand it electrolyzer opportunity mind. can the you contribution Looking at expectations, us just tracking on that, to outline you XXXX get of ahead don't tailwind, maybe for feels but

Mark Smith

battery at in New into got specific we've electrolyzer next yes, in Power would systems and is, getting in electric business improving sight without into say of growth this line would sales both demand I numbers, year. I expect What time point

is going going Power. $XX side. visibility got billion But I clearest we've the the that's into be Again, to Power strong think to now. momentum to I So customer right don't yes, a dramatic New company. on strong. eAxle continue then in relative a New And side think the is got demand I've demand change

Jennifer Rumsey

electrolyzers, the capacity. talked as the on and in investment about of I some production Yes,

So Mark good. we and And be we're building time. still backlog. over it's capacity, going at the grow, early to of that building the stages this up in It's to really lumpy point, going up production said, as feel

the strengthening U.S. Inflation the hydrogen in outlook provisions the around and Reduction that climate Act In fact, the are

Jerry Revich

the And can you haven't what Meritor conversations and Cummins have least And I talk integration. if guide full XX on about points, could what's eAxle by on customers? you particularly the year Meritor that axles the to pertains been the embedded, conventional customer margin that's as but customers initial Can traditional touch like, those it Meritor? inventory Super. ask, response relative within selling you depressing been could the step-up if to guidance, looks on I'm that outline results Slide that's two Thanks. Meritor at for wondering like to

Jennifer Rumsey

have both level. Meritor as how and supply to talk businesses we're added the the in us, to of forward. them can the we're that and Power a as to opportunities and New the business, conversations we on core strategic those Early with integrating are well starting for operational Yes, them early portfolio have our strategic and business conversations days days excited positive it's Meritor a as we part in that of going serving have. And have at about obviously customers that both

Mark Smith

delivery a as right business, in there demand Yes, parts on our lot of focus and is Jerry. now of other

We So raising keep need we of aren't short rates. to demand. those production

Christopher Clulow

was your step-up. inventory that the is through the complicated this about third which reconciliation $XX And on of talks and Meritor good question inventory Jerry, picture earnings It's on in million the quarter a deck, that quarter. there's the step-up impact for in the

Jerry Revich

in fourth, Chris? Any the

Christopher Clulow

quickly would Most of bit. Jerry. you as small inventory burns expect, off a Just that

Jerry Revich

Super, thank you.

Operator

with from Morgan. Our next question. J.P. your comes Please Tami state question

Tami Zakaria

good my Hi, morning. for questions. taking Thank you

a So of have questions. I couple modeling

I presentation in rate I first GAAP your you my think question is, that So was EBITDA said, X.X%. saw Meritor's

you think with EBITDA we our have so next using what let's on to help that that should been to say basis what next in rate us incorporating it And non-GAAP integrate just few about because years and we model, do business? Meritor non-GAAP can expect year, improve you over would better be a rate the as for

Christopher Clulow

Yes.

a try bit. So to unpack let me little that

our quarter. about Meritor essentially itself guidance year results X.X%. as at for Jen essentially And is XXXX was full the for GAAP mentioned, for second breakeven U.S. the in the So

you fourth some the the operating of in an and and implies quarter, out QX, was EBITDA So U.S. in that approximately noise that the including quarter that little a the in -- bit take you the was QX take implies if X.X% up X% about accounting EBITDA. out when GAAP, purchase third of from, in

in other there, gain we seeing as we're would towards drive synergies So business. then well the go through step-up improvements continue -- a we as as the to continue to there. improvement And both the we future,

So of I'm there. of you happy you separately, that through trajectory view more the talk gives if kind to some like.

Mark Smith

short to on in tried both you patience as give this appreciate we'll information. we best in those and it as everyone's err clear sharing to market. I we've as not give as course, QX the you going on performance and next the also elements, it's be possible. to year. make side realize run, more But dependent is the the all to of to continue the less to disclosures of of work the get and all messy out We'll And

Tami Zakaria

Got gave modeling next for bonus that treating it year, quick now, one quarter, as lap That's the we employees a me And another it we should to from be you this helpful. perspective, super it. from one-off right? as

Mark Smith

that's Yes, of will it the margins the results not won't be better in one one will but the our our quarter. and be only present fourth quarter factors the why margins -- factor of EBITDA factors the even fourth in why

Tami Zakaria

you much. so Thank great. awesome, Okay,

Mark Smith

Tami. Thanks

Operator

state Please next Steven question Our UBS. comes from with question. your

Steven Fisher

morning. good Thanks,

of from QX. drag mentioned, the is direct key from just bigger is then you're gen to and give and other the give is sort QX, of you help just sort to just know just have of expecting, gen gave higher summarize core benefit of the a better us kind bit go the from million bit of EBITDA you than costs, China us you you QX? puts a worse lots is the and kind of I business? slightly to I power a power you the employee And Power, high in bit $XX margin investments your have for So there to but is obviously, bridge bridge any QX you XX.X% basically that summary Is the QX level, that is any of implied business it takes, there can can China overall message a of at than New mean,

Mark Smith

rebound. the significant No areas two in core in those elements one And in the increase improvement really that margin key to China expenses little or quarter. we and are are have expect to improvement fourth of some no pricing three we've to in we three elements bonus operational improve. there those challenges bit expected in, of bridge, and did Steve: QX drivers Yes, the a baked then QX; concentrated in mentioned, the from

Steven Fisher

would takes main And business and were? the summary the the of you gave puts of of core what with of sort I agree that Okay. kind

Mark Smith

quarter. and And the were quarter that than thing these we the so Yes. present other rebound. point, losses mark-to-market Those we is to rate them lower in second a will in incur only the stabilize didn't call out. continue At at some but third

in noise that's the So other line. income

Steven Fisher

far talked guess earlier the the much I'm Okay. strength. relative I'm to you have into That's heavy-duty plans about I how I just Thank very of the helpful. order OEMs XXXX the And at then North curious visibility half? you this America, of there half in first how XXXX market and curious have you the given point. confidence just in have terms to work their truck you. know the second you

Jennifer Rumsey

talking to Yes, orders them point, OEM the staying and we'll to about strong At how And based on year. about outlook got I in on watch continue of second and course to we've that half that. with customers mean close to a backlog this in are close evolves outlook forecast and the October. stay them our we September nine-month of

Steven Fisher

Perfect, thank you.

Mark Smith

Thanks Steve.

Operator

Our from state next your with question. comes Please question Cowen. Matt

Matthew Elkott

necessary is increases, overall of in ahead pay labor the you. in moderation thank or it want to you order talk rather made the Can the lock doing quarter a to I a it didn't of costs a in onetime to have the do economy pay about bonus lot Good just increases in further bonus something you attrition? just that not specific morning, to did rationale than of behind that happen mean, possible

Jennifer Rumsey

it Yes, of really the latter. was more

effort and tighter. appreciation, onetime labor was key for we are it costs. strongly to attrition, to all through the where of felt at tremendous looking recognition the as very this deliver We and our So happening to the we that of XX and very challenges connected they really supply of given to and revenue people felt course, inflation, mitigate to work the But motivate last the continue months at chain pay level the that market deliver to labor over them, we're deliver and to commit to strategic is with what's growth employees higher and did the initiatives, environment always delivering to relates really, show the continuing experiencing company. market impact appropriate to given and be the

Matthew Elkott

Got it, And bigger a question. then just sense. makes picture

be rest mining demand it like into for of the the the mining look oil side, continue and it Does we this momentum happen the you on had equipment a decade, cycle time, by demand starts, side? know false strong multiyear replacement been being guys driven could -- it And is should to look gas it's like in replacement look replacement, year. cycle expecting does on threatening this equipment does to last for XXXX? it like this the and You're and I mining the

Jennifer Rumsey

demand year. that see do continuing we next Yes, into

Of XXXX. continue demand time. indicators continue a course, over strong to to to now But in oil into right And holding and those see the energy in gas with demand we markets, we'll there's invest of monitor economic challenges, to both have lot there. those of

Mark Smith

local sold There's as factors There pretty availability some energy year. out the are across some we're and borders. factors, for production overall much regional increased India. in Yes, as security coal well of this

Matthew Elkott

much. very Thanks

Jennifer Rumsey

you. Thank

Operator

Please Our question. Oppenheimer. from your next question with state comes Noah

Noah Kaye

taking for my thanks Alright, questions.

first. Just Off-Highway with sticking

you the tailwind companies to potentially of is see customers started benefits driven engine growth some sort from that from a that kicking any mentioned pricing. demand for and America, in that beyond? construction being You really by XXXX to it's of IIJA yet, North in sales CAPEX the or rental Have

Jennifer Rumsey

the infrastructure energy some Reduction going in mean, clean these I investment Act technology. Inflation support to is Yes. to drive of

time, electrolyzer it over provide see a actually should specific right, see underlying also we that demand to But impact provide benefit as benefit. construction U.S. and I of earlier, early, we'll positive It's increased in certainly, could alluded the to So expect, that. demand, to the

Noah Kaye

legislation about the of Washington. a Sorry, Bill. the lot I know we've IIJA, of out I had was talking Infrastructure

Jennifer Rumsey

Sorry. respond on Did one? I the wrong

Noah Kaye

impact from so the wondering far? if shots sounds multiple you It on talk kind have Bill goal, any just you Infrastructure through of can Yes. but

Christopher Clulow

Noah. thanks, Yes,

IRA is a very obviously, I it's outcome, Infrastructure -- whereas think similar the more the the similar having actually is New into Power Bill driving space.

We this strong year through lot be and rental America know. has forward are work some to remained you seeing companies that other equipment the momentum through build that to good benefit as out those North momentum we or in continue of we And whether as the carrying space. there's some of in and that is done, a construction --

is certainly So helping that us.

Noah Kaye

then And great. I Okay, a for folks Meritor year. going know have couple of asked about impact forward next

as So precise we we margin, add think year for just X.X% annualized I synergies about I here, some modeling, EBITDA you mean Components be know capture this won't but margin, everybody's point? and in probably starting right, couple some be at as a that growth, a XXXX, look hundred of going we is it's headwind of good margin a still Components to bps,

Mark Smith

of On time. going is dilutive keep percentage Yes. to basis, early goal the and ownership to clearly the that be a over it's working the in up part

Noah Kaye

us? you can give that capture synergies the of cadence the on color early any And

Mark Smith

a and lot lot also core. some mean, are is business I I We've pretax included that of earlier on and, good that working finding got with to dedicated just a demand million working I about on progress but gave will of as No. off work business we're very well will lot good to supply we that. that course, every other busy a of that, employees, in teams confident three. us, work And we're other feel $XXX of say numbers taxes integrating and of the that's we as are the the year we're start But -- day. synergies ahead Still start. still challenges not to things there. say by in of our

much synergies in the improvement and very operations. listening and They're the their we busy very employees. towards We're we hard that. of appreciate driving work all So appreciate

Noah Kaye

so thanks much the Okay, for color.

Mark Smith

Noah. Thanks

Operator

this I'll our Q&A Chris final call. That closing to back remarks. question, turn concludes was over and for of the that it session

Christopher Clulow

you, everyone, everyone much, Thank joining. for --

you. appreciate afternoon questions your have the Thank attendance we today. answer may always, you I will that As to from and be Investor Relations any perspective, this available

Operator

conference you Thank concludes your you. This thank for participation. call. We today's

disconnect lines this day. at a and great your time, may have You

Cummins (CMI) 3 Nov 222022 Q3 Earnings call transcript